COBRA enrollment doubles after premium subsidy kicks in

With the federal government picking up part of the tab, twice as many workers are opting to pay to keep their health insurance after they are laid off, according to an analysis released in August.

The Consolidated Omnibus Budget Reconciliation Act of 1986 allows workers to temporarily remain covered under their former employer's plan after leaving a job, but only by paying 100% of the premium.

Because employers often heavily subsidize premiums and newly unemployed workers have diminished income, only a fraction of those eligible have historically opted in.

But this year's stimulus package included $25 billion to subsidize COBRA premium payments, which drove up enrollment to 38% of those who were eligible between March and June, compared with an average of 19% over the preceding six months, according to a report by Hewitt Associates, a human resources consulting firm. The group surveyed 200 large employers with a collective 8 million employees.

The federal subsidy reduced premiums from an average of $8,800 per year to about $3,000, the report found.

The country's largest health plans had anticipated an increase in COBRA enrollment because of the subsidy, but a few were surprised over the last few months by the level of COBRA uptake.

At WellPoint, enrollment grew from 1.6% of the health plan's fully insured population at the end of 2008 to 2.2% at the end of the second quarter of 2009, President and Chief Executive Officer Angela Braly told investment analysts in July.

Because people with chronic illnesses or planned medical expenses are likely to choose to pay for COBRA coverage rather than risk being uninsured, the COBRA population is more expensive to insure than is the general population. WellPoint specifically pointed to that as one of the reasons its earnings declined.